What is an ERP System ?

An ERP which stands for Enterprise Resource Planning is a software application that has all its core organizational business processes merged into one.

ERP systems are used to plan and monitor the organizational resources. They help the organization plan, maintain, track and report on their resources.

ERP systems are split into different modules which are used to represent all the major departments in an organization.

These modules include Sales, Finance, Production, Human Resources and Warehouse.

ERP systems are designed to combine all these modules into one in order to increase the speed of information flow throughout the company.

This enables better organization planning, reporting, communication and high positive results.

The ERP system is designed in this way so that once data is entered into one modules, it is stored in a central database so that it can be used to generate transactions that would be used in the other modules.

For example, when a customer wants to buy a product, that customer is created in the sales module, and their information is used to generate a sales order and a sales invoice.

Then a warehouse shipment is created from that sales order in order to deliver the goods to the customer. Though the warehouse shipment is in the warehouse module, due to the integrated nature of ERP systems the customer information that is available in the sales order module is reused in the warehousing module.

The movement of the warehouse shipment would deplete the stock in the inventory so the production team would be able to know when they need to manufacture new products.

The sales order, sales invoice and warehouse shipment would all create financial transactions which would automatically update the chart of accounts so that the financial team would also have real time data to generate reports and create dashboards .

These reports and dashboards would be used by the executive team members in order to make strategic decisions.

So what are some of the advantages of using an ERP system ?

Some of the main advantages of using an ERP system include the following :

  1. Just in time inventory : due to the integrated modular design of ERP systems, they would help the company forecast their inventory needs and produce just what they need. Which in turn would reduce their overhead costs that includes labor, power and raw materials.
  2. Shortened cycle times: An extended cycle time reduces the company’s ability to convert manufacturing costs into profits. The just in time inventory which is supported by the ERP system enables the company to reduce its cycle time and maintain an efficient and agile supply chain.
  3. Improved processes : the ERP system improves various processes due to its centralized data entry design. This design enables data to be entered into the system once and become accessible by everyone in the company who has the required access to the system. This in turn reduces data entry errors, and duplication of effort and improves data consistency.
  4. Increased response time : Due to the centralized data, the end users can access the data in real time, which would lead to a reduction in their overall response time and improve efficiency.

Some examples of popular ERP systems include Oracle E-Business Suite, SAP, Dynamics 365, Sage and Infor.